Ever since the news broke that Bayer has put their diabetes device business up for sale, the device industry is doing what it does – speculating on who will buy the unit and how much will it be sold for. Just as we did when Amylin (NASDAQ:AMLN) became a takeover target, Diabetic Investor has decided to conduct another contest – name the acquiring company, how much they will pay and just to spice things up a commentary on how this play out in the end. Not only will the winning entry receive a special prize but with the winners permission Diabetic Investor will publish the winner’s commentary.
Now given the larger number of subscribers we have in the device industry Diabetic Investor will further agree to publish the winning commentary without direct attribution to protect the winning party from any attempts at retribution. This too is a unique aspect of the diabetes device business as not only do these people spend countless hours and millions of dollars on such important matters as what colors glucose monitors should come in. (Diabetic Investor actually believes there is some genius out there who wants to conduct a fashion show each year when the new line of meter colors come out.) But these folks are well acquainted with the let’s blame someone, anyone else but ourselves for the problems we actually created but will only take credit when these ideas work and pass the buck when they don’t.
In many respects it is poetic justice that Bayer once the industry leader in BGM has now thrown in the towel. It was Bayer after all who was the very first meter company to give away the meter for free and made the BGM market into a razor/razor blade business model. Back in the day everyone thought this was the greatest move since sliced bread and soft soap. This strategy worked so well it was quickly copied by the competition and in our opinion was the beginning of the end for the BGM industry as we know it.
Now we’re not against consumers getting something for nothing but when it comes to glucose monitoring consumers have always believed that the meter was more important than the test strip used with the meter when the exact opposite is true. In effect by giving away what consumers believed was advanced technology for nothing the meter companies actually devalued the entire testing process. The basically feeling among these patients who were never properly educated on the value of regular testing was that there was no value in the test result otherwise why would the company give away such an important technology. Simply put by giving away meters for free the industry set in motion a chain of events that has put them where they are today, in deep sewage.
Back in the day, in a galaxy far, far away these companies had an opportunity not only to make millions but actually help patient’s achieve better outcomes had they bothered to take a small percentage of the huge profits they were making and actually tried to educate their customers a little. Instead the meter business became a technological arms race to see who could offer the fastest test time, smallest blood sample and ultimately the prettiest colors. Here too Diabetic Investor has no issue with these advancements as they have helped patients who do test, however the facts and data tell us that with all these advancements average testing frequency hasn’t change and unfortunately outcomes haven’t change either.
Today BGM companies both old and new are trying to put the mercury back into the thermometer with interconnected diabetes management systems; systems which are dependent on patients regularly monitoring their glucose levels. This is why these systems will ultimately suffer the same fate as the conventional meters which they are designed to replace, as only a handful of patients actually monitor their levels regularly and many of these patients will ultimately end up using a continuous glucose monitoring system as it is a more effective tool for these patients. This is also why these interconnected systems will have a limited market potential as there just aren’t enough patients who monitor their glucose regularly to support all the companies who will offer these system, in that respect it will be much like the insulin pump market which has too many current players and too many newcomers to support the finite number of insulin pump patients.
The bottom line is Diabetic Investor actually believes Bayer has made the wisest decision of all, that they understood as the number four player in the market that the cost to add share just wasn’t worth it and that they did not want to spend even more money to develop newer systems which will likely end up no better than what they have already. They also know there are plenty of companies who actually want to enter this market and will pay handsomely for this privilege. (The diabetes device industry is living proof that the greater fool theory is alive and well.) So kudos to Bayer for at least acknowledging the reality of the situation and actually doing something about it rather than sticking their heads in the sand, we can only hope more diabetes device companies get the message.